Your firm audits Metropolitan Power Supply (MPS). The issue under consideration is treatment in the company's financial statements of $700 million in capitalized construction costs relating to Eagle Mountain, a partially completed nuclear power plant. the Seven years ago, MPS began construction of Eagle Mountain, with an original cost esti- years. Cost overruns were enor mous, and construction has been repeatedly delayed by litigation initiated by the antinuclear lobby. At present, the project is little more than 50 percent complete, and construction has mate of $400 million and completion expected within five been halted because MPS does not have the funds to continue Eagle Mountain is ultimately completed, the state utilities commission will determine the may recover its construction costs through its rate structure. The commis- sion's rulings are difficult to predict, but it is quite possible that the commission will not allow MPS to include all of the Eagle Mountain construction costs in its "rate base." If Eagle Mountain were abandoned today, none of the construction costs would be recoverable. The related write-off extent to which MPS ould amount to over 70 percent of MPS's stockholders' equity, but the company would survive MPS's management, however, remains committed to the completion of the Eagle Moun tain facility. Management has obtained authorization from the company's stockholderst issue $500 million in bonds and additional shares of common stock to finance completion the project. If MPS incurs this additional debt and is still not able to make Eagle Mountai fully operational, it is doubtful that the company can avoid bankruptcy. In short, management as elected to gamble-all its chips are riding on Eagle Mountain. a. Discuss the arguments for and against the auditors insisting that MPS begin expensing some portion of the construction costs rather than continuing to accumulate an ever increasing asset. Indicate the position you would take as the auditor. b. Discuss whether the auditors should modify their report because of uncertainty abou whether or not MPS can remain a going concern. Indicate the type of opinion that yo would issue. (You need not limit yourself to a "going-concern" modification.) Part a FASB Accounting Standards Codification sections 360-10 and 450-20-25-2 Part b AICPA AU-C sections 570 and 700-706; PCAOB AS sections 2415 and 3101